Rupee on losing streak as foreign banks sell dollars

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Indian currency to remain in 56-57 range till March ‘13: Experts

High fiscal deficit, widening current account deficit, low economic growth and high inflation, and government inaction on the recently announced reforms will make the rupee underperform against the US dollar, market experts said.

The rupee, which had strengthened in September, on the announcement of reforms by the government and quantitative easing (QE) in the US, will remain in 56-57 levels till March 2013. It took 22 days for the rupee to strengthen from Rs 55 level to Rs 51.5 level, while it took only 11 days for it to come back close to Rs 55, indicating rupee’s weakness.

“The appreciation you saw a few months ago was due to QE in the US and reforms from the government. Locally, the important component is fiscal deficit and inflation that remains high while growth is falling. Money is not flowing in India. The 2G spectrum auction was under-subscribed. Rupee compared to emerging markets is still an underperformer,” said Abhishek Goenka, founder and chief executive officer of India Forex Advisors.

“We expect rupee should maintain a weakening trend in the coming months and at 56-57 level before March 2013,” added Goenka.

On Thursday, the rupee strengthened marginally to close at 54.70 against the US dollar, as foreign banks sold dollars, and euro firmed up. The rupee’s previous close was 54.88/89 and had opened at 54.98 level on Thursday against the dollar, made the intra-day high of 55.08 levels while the low of 54.68 levels.

NS Venkatesh, treasury head, IDBI Bank, said, “Dollar supply from external commercial borrowing (ECB) in the market, and selling of dollars by foreign banks helped strengthen the rupee. Some oil companies bought at 54.80 levels. Essentially, the rupee strengthened as euro strengthened against the dollar from 1.2670 to 1.2740, as euro sentiments improved.” “Tomorrow (Friday) levels for the rupee may range from 54.50 to 54.90,” he added .

Market analysts said that a slight recovery in the euro after hitting its lowest against the dollar in two months on Tuesday, also helped rupee to gain.

The BSE Sensex fell for a fifth consecutive session on Thursday to a two-week low, as concerns about expanding negotiations to avoid a US “fiscal cliff”. The 30-share BSE Sensex fell 147.50 points to close at 18,471.37 after losing as much as 210 points to intra-day low of 18,408.69. Meanwhile, the 50-share NSE Nifty that managed to hold the 5,600 levels slipped 35.95 points to end at 5,631 on Thursday.

The economic output in the 17-country euro zone fell 0.1 per cent in the third quarter. Germany and France, the euro zone’s biggest economies, could not save the bloc from a double-dip recession, even though both countries managed 0.2 per cent growth in the quarter. The European Commission sees a 0.4 per cent contraction for the euro zone in all of 2012.

The fiscal deficit in India had stood at 5.8 per cent of GDP in FY12. The inflation too has remained sticky so far. The recent inflation numbers at 7.45 per cent for October though showed marginal decline over preceding month.

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